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UPDATE ON IRELAND’S

INTERNATIONAL TAX

STRATEGY

OCTOBER 2016

Department of Finance

Government Buildings,

Upper Merrion Street, Dublin 2,

D02 R583, Ireland

Website: www.finance.gov.ie


Department of Finance | Update on Ireland’s International Tax Strategy

2015

Contents >

Foreword by the Minister ....................................................................................................................... 3

A Brexit Ready tax system ....................................................................................................................... 4

Ireland and BEPS implementation .......................................................................................................... 5

Ireland’s engagement with EU tax proposals ......................................................................................... 6

Tax transparency & tax and development .............................................................................................. 7

Update on Ireland’s International Tax Strategy ...................................................................................... 8

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Department of Finance | Update on Ireland’s International Tax Strategy

2015

Foreword by the Minister >

In my time as Minister for Finance I have seen significant shifts in the

international tax landscape. We have made some difficult but

necessary changes in that time, and now, with the benefit of some

perspective, I believe I can say that we made the right changes, at the

right time and in the right way.

In the ever changing world of international tax reform, Ireland has

been the voice of clarity. We have committed to meeting the best new

international standards and have set about honouring that

commitment without undue fuss or drama.

Our core offering is a competitive, businessfriendly

regime with a rock solid commitment to

the 12.5% corporation tax rate. Our regime

meets the highest standards in transparency and

we have taken important steps in recent years to

make sure that our relationship with our partners

in the developing world is a fairer one.

We compete fairly and we play by the rules.

Everyone must pay their fair share, whether they

are an individual or a company. This is necessary

if we are to fund public services and retain the

legitimacy of the tax system. Our rules are

written in law and they apply to everybody. This

is why the Government is challenging the EU

Commission’s decision on the Apple State aid

case. We need to defend the integrity of our tax

system; taxpayers need certainty on what their

responsibilities are; and we need to defend our

sovereign competence in taxation.

Over the coming years, we will bring forward the

necessary changes to meet our international

commitments by the required deadlines, while

ensuring that we remain competitive and

responsive to changes in our environment. At

times of uncertainty and change, we have shown

ourselves to be sure-footed. We remain

confident that our core offering is competitive

and robust.

This second annual update provides me with an

opportunity to point to Ireland’s track record of

delivering on our commitments under our

international tax strategy. We remain responsive

to changing demands, but recognise the value of

constancy in our core principles. I know that

business values certainty and so I have taken the

opportunity to map out where we are going in

the year ahead. While change is inevitable,

uncertainty is avoidable.

Michael Noonan, TD

Minister for Finance

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Department of Finance | Update on Ireland’s International Tax Strategy

2015

A Brexit Ready tax system

Brexit, and the changing relationship between the United Kingdom and the European Union, is a

significant factor when considering Ireland’s competitive position for attracting investment and jobs.

The economic impact of Brexit will depend on the future relationship between the UK and the EU,

especially regarding trade, financial flows, and the movement of labour.

Ireland remains in a very strong position to attract investment and jobs. The Government has

committed that this year’s Budget would be Brexit-proofed. Taking account of this commitment, and in

light of in-depth sector analysis published by the Department of Finance, a number of taxation

measures have been announced in the Budget, with a view to getting Ireland “Brexit ready”. These

include measures in the areas of small and medium enterprises, Irish exporters, entrepreneurship, and

the agri-food sector.

A competitive corporate tax policy improves innovation and increases capital investment which can

help to maximise the economy’s potential in the future. The review of the Irish corporate tax code

which has been launched in Budget 2017 will include consideration of how best Ireland can deliver tax

certainty for business and maintain the competitiveness of Ireland’s corporation tax offering.

The cornerstone of our competitive offering remains the 12.5% Corporation Tax rate. This rate is

supplemented with the best-in-class R&D tax credit and Knowledge Development Box. Both of these

incentives are designed to attract real jobs and substance to Ireland, and are fully in line with agreed

international best practices.

An evaluation of the R&D tax credit has been published with Budget 2017. This evaluation highlights

the beneficial impact the credit has had in encouraging innovation and investment in research and

development in Ireland.

The Knowledge Development Box (“KDB”) was introduced at the beginning of the year to support all

companies carrying out substantive innovative activities in Ireland. Legislation will shortly be brought

forward by the Minister for Jobs, Enterprise and Innovation to provide an additional benefit, within the

parameters of the OECD “modified nexus”, for small companies who wish to avail of the KDB.

The Government has also confirmed its commitment to the 3 year corporation tax start up relief. This

relief plays an important role in assisting small businesses in starting, growing and creating jobs.

‘Getting Ireland Brexit Ready’ has been published with Budget 2017 outlining the policy responses to

Brexit that have been introduced in Budget 2017 to enable exposed sectors of Ireland’s economy to

remain competitive, and to protect the public finances from Brexit related shocks.

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Department of Finance | Update on Ireland’s International Tax Strategy

2015

Ireland and BEPS implementation

The OECD BEPS project is now being implemented around the world. The BEPS Inclusive Framework

has been created to provide a forum for countries both in the OECD and beyond to work together on

this important task. Part of this task will involve monitoring how all countries implement BEPS to ensure

a level playing field worldwide.

Ireland has committed to the BEPS process and will play its full part in implementation. As a small

country with an open economy, we must keep pace with this international movement for change.

Ireland has already begun this process. We began by implementing Country by Country Reporting in

Finance Act 2015. Many other countries have followed suit and all EU Member States will have rules

in place by the end of this year. We are also fully implementing OECD exchange of information

requirements in respect of tax rulings as agreed in BEPS Action 5.

The Anti-Tax Avoidance Directive is a significant step towards the implementation of the BEPS reports.

The Directive will see three of the other key OECD BEPS recommendations implemented across Europe.

These are rules targeting hybrid mismatches, interest deductibility rules and Controlled Foreign

Company rules. Ireland will implement these changes in line with agreed deadlines set out in the

Directive.

The BEPS multilateral instrument (“MLI”) is close to being agreed by more than 90 countries. This MLI

will provide the mechanism for extensive changes to tax treaties globally. It will ensure that tax treaties

are updated to reflect a number of important OECD BEPS actions, including agreed standards on treaty

shopping and dispute resolution. Ireland has played an active part in this work.

In May this year, new transfer pricing rules were agreed at the OECD. We now need to consider what

changes are needed to ensure that Ireland’s transfer pricing rules meet the standards set in the OECD

transfer pricing guidelines.

Ireland will continue to take actions needed to implement the BEPS reports. The review of Ireland’s

corporation tax code, which has been launched with Budget 2017, will include consideration of what

further actions Ireland may need to take to ensure we are fully compliant with the OECD BEPS

recommendations.

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Department of Finance | Update on Ireland’s International Tax Strategy

2015

Ireland’s engagement with EU tax proposals

EU Member States acting together have taken significant actions to combat aggressive tax planning.

The substantial achievements of the past year have proven that Member States can agree significant

Directives which severely restrict the ability of companies to engage in profit shifting or base eroding

activities.

The Anti-Tax Avoidance Directive was agreed by EU Finance Ministers in June. The Directive is an

important step in efforts to combat aggressive tax planning across Europe. Member States agreed to

five significant corporate tax anti-avoidance measures, three of which derive directly from the OECD

BEPS process. The other two measure involve an agreed approach to exit taxes and general anti-abuse

rules.

Ireland played a very active role in shaping the Directive. In negotiating the Directive, we sought to

ensure that Ireland’s sovereignty on tax rates was fully protected and that genuine investment in

Ireland would not be unduly impacted. The Directive is now being transposed with a timeline that

allows business to plan ahead and which should ensure Europe acts consistently with the rest of the

world. The measures in the Directive will be implemented by Ireland to meet the agreed deadlines.

Member States continue to debate further proposals to tackle aggressive tax planning. EU Member

States are currently considering other tax proposals including the potential reform of the Interest &

Royalties Directive and a proposal for a common EU Black List of third jurisdictions. Ireland is actively

engaging in work on these files. Ireland is also an active participant in the EU Code of Conduct Group

which examines harmful tax competition within the EU.

Further new proposals will be debated by Member States over the next year. These include proposals

on improving dispute resolution mechanisms and requiring the mandatory disclosure of aggressive tax

schemes. Ireland is one of a small number of countries to already have a mandatory disclosure regime

in operation and is in favour of improving dispute resolution mechanisms. While we await details of the

exact proposals, Ireland is generally supportive of the need for co-ordinated EU action in these areas.

Later this year, the European Commission will relaunch its proposal on the CCCTB Directive. Ireland will

engage fully in discussions on this proposal while assessing whether it is in our best interests. Taxation

remains an area for unanimous decision making at Council, as laid out in the Treaties.

Ireland continues to disagree with any harmonisation of tax rates, minimum levels of taxation or the

inappropriate encroachment of State aid rules into the core Member State competence of taxation.

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Department of Finance | Update on Ireland’s International Tax Strategy

2015

Tax transparency & tax and development

Ireland remains a leading supporter of international efforts to increase transparency in the area of

corporation tax. The Government has committed to the highest international standards in

transparency in the taxation of the corporate sector. Tax transparency and access to information is key

to tackling the global problems of tax avoidance and aggressive tax planning.

Ireland has strongly supported work at EU level to ensure that all Member States meet these high

standards. Member States have agreed significant enhancements to administrative co-operation and

the exchange of information within the EU in recent months.

The Directive on Administrative Cooperation (DAC) is the cornerstone of tax transparency between

Member States. The third and fourth iterations of DAC have been agreed during the last 12 months

(known as DAC3 and DAC4). The Government has committed to implementing these two transparency

Directives by the end of 2016. DAC3, which deals with the automatic exchange of tax rulings among

Member States will be transposed later this year. DAC4, dealing with the automatic exchange of

Country by Country Reports among tax authorities, will also be implemented in Irish law in Finance Bill

2016.

Member States remain committed to enhancing the exchange of information. A further proposal to

amend the DAC is very close to reaching political agreement. The proposal, DAC5, would ensure that

tax authorities are given access to relevant information prepared by financial institutions as part of their

anti-money laundering requirements. Ireland has strongly supported this proposal which is consistent

with the approach currently taken in our national tax legislation.

Tax transparency is necessary worldwide, and not just within the EU. The G20 and OECD are currently

developing criteria for a list of countries that are not sufficiently transparent. This OECD list should play

an important role in encouraging the adoption of the international standards in transparency across

the globe.

Our domestic legislation must also ensure that Revenue have access to all necessary information.

Following the publication of the Panama Papers this year, Minister Noonan advised the Revenue

Commissioners that he would support granting any additional powers that were necessary to ensure

Revenue had access to all relevant information. The upcoming Finance Bill will detail a number of

proposals in this regard.

Ireland remains cognisant of our commitment to engage constructively and respectfully with

developing countries in relation to tax matters. In last year’s Finance Act, new tax treaties with two

developing countries were ratified which strike a more appropriate balance of taxing rights. Ireland

continues to encourage other developed countries to follow our example and carry out a spillover

analysis into the impact of their tax system on the economies of developing countries. Ireland is a

leader in this area of research: only one other country has previously carried out a similar spillover

analysis project.

Ireland is also an active participant in the EU Platform for Good Tax Governance. This forum brings

together representatives from governments, business and civil society to discuss approaches to

targeting tax evasion and avoidance.

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Department of Finance | Update on Ireland’s International Tax Strategy

2015

Update on Ireland’s International Tax Strategy

Ireland’s International Tax Strategy sets out a Charter with the principles and objectives underlying

Ireland’s international tax policy. We are setting out below the further progress that we have made on

these commitments since last year.

Ireland is committed to maintaining an open, transparent, stable, and competitive

corporate tax regime.

We will achieve this by:

• Maintaining a rate of 12.5% on active, trading income and 25% on passive, nontrading

income for all domestic and international businesses

• Considering any proposed changes to our tax legislation in terms of its impact on

sustainable jobs and economic growth

Ireland is committed to full exchange of

tax information with our tax treaty

partners

We achieve this by:

• Responding to requests for information

in an efficient manner

• Providing information in as

comprehensive a manner as possible

taking account of the nature of the

request

• Complying fully with our

responsibilities and obligations as set

down in our tax treaties

Ireland is committed to global automatic

exchange of tax information, in line with

existing and emerging EU and OECD

rules

We promote this by:

• Timely transposition of relevant EU

legislation into Irish law

• Full participation in OECD

developments, making appropriate

provision in Irish law as necessary

• Promoting the use of automatic

exchange of information with tax treaty

partners

Developments since October 2015

• Legislative changes made in Finance Act

2015 to improve Revenue’s ability to

access and exchange information.

• Text of the Multilateral Instrument

agreed at the OECD to update global

tax treaties for BEPS recommendations.

• Government approval to sign two new

Double Tax Agreements.

• Government approval to sign a new Tax

Information Exchange Agreement.

Developments since October 2015

• The second revision of the Directive on

Administrative Cooperation that

enabled the automatic exchange of

financial account information was

implemented in Finance Act 2015.

Ireland has actively supported work at

EU level on a third, fourth and fifth

iteration of the Directive on

Administrative Cooperation to facilitate

the automatic exchange of information

on cross border tax rulings, Country by

Country reports and to ensure that tax

authorities have access to AML

information.

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Department of Finance | Update on Ireland’s International Tax Strategy

2015

Ireland is committed to actively

contributing to the OECD and EU efforts

to tackle harmful tax competition

We achieve this by:

• Active participation in the EU’s Code of

Conduct and the OECD’s Forum on

Harmful Tax Practices

• Rejecting introduction of measures in

national legislation which could

constitute harmful tax competition

• Eliminating any measure in national

legislation if it is found to be harmful

• Active participation in the OECD Base

Erosion and Profit Shifting project

Ireland is committed to engage

constructively and respectfully with

developing countries in relation to tax

matters including by offering assistance

wherever possible

We achieve this by:

• Supporting international efforts to

build developing country capacity to

benefit from enhanced global tax

transparency

• Promoting the extension of Countryby-Country

Reporting to areas beyond

the “extractive” sector and greater

international reporting to competent

authorities

• Offering financial support to regional

initiatives to strengthen tax

administrations in Africa

• Strengthening the Public Financial

Management systems of developing

countries

Developments since October 2015

• Ireland agreed the Anti-Tax Avoidance

Directive with our fellow EU Member

States to implement a number of BEPS

Actions consistently across the EU.

• Ireland continues to engage

constructively on other EU tax files.

• Ireland remains engaged in the OECD’s

BEPS project and the new BEPS

Inclusive Framework as it moves into

the implementation phase.

• The Knowledge Development Box was

introduced in Finance Act 2015 in a

manner that fully complies with the

international best practice agreed in

BEPS Action 5.

Developments since October 2015

• Ireland continues to encourage other

countries to publish their own spillover

analysis, modelled on the report

published in last year’s Budget.

• Country by Country Reporting was

implemented in Finance Act 2015 and

Ireland signed a Multilateral

Competent Authority Agreement in

January 2016 to share these reports

with other tax authorities.

• Re-negotiated Tax Treaties with two

developing countries which provided

for greater source country taxation

were ratified in Finance Act 2015.

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Department of Finance | Update on Ireland’s International Tax Strategy

2015

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